fbpx

HOMEPORTAL

Menu

mortgage debt

What is mortgage stress test?

Blogs / / / , , , , , , ,

What is mortgage stress test? The mortgage industry is currently undergoing a “stress test,” you may have heard about. It’s the guidelines that mortgage providers use to figure out whether a borrower is eligible for a loan, and if so, how much of a loan they can get. It’s still valid for purchasers with a 20% down payment. The mortgage stress test is utilised when getting a new mortgage, changing mortgage companies, opening a home equity line of credit, or refinancing. However not while renewing with the same company. The federal government first introduced the test in 2018, and on June 1, 2021, it was revised to reflect changes in the housing market. Significance of mortgage test If interest rates were to rise and your mortgage payments were to increase dramatically, the mortgage stress test might assist save you from falling behind or perhaps going into default. It was developed to aid homebuyers in making sure they don’t overextend themselves financially due to the purchase of more house than they can comfortably afford, even if interest rates rise. What does the test determine? Targets of the examination The mortgage servicer will use the following criteria to establish your eligibility for a loan: The Amount of the Mortgage Interest rates as of right now Payment schedule for a mortgage Money coming into your home Housing expenses, including rent or mortgage payment, and/or condo association dues Your Present Obligation How to determine what you can afford? Mortgage lender will perform two computations. The first is the ratio of total debt payments made each year. Your monthly mortgage payment, along with your utility bills and property taxes, will consume this much of your pre-tax income. We recommend no more than 35%. The second is the ratio of total recurrent interest payments to your total unsecured debt (total debt service, or TDS) (mortgage, car loans, credit card, lines of credit, etc.) It shouldn’t exceed 42% of your take-home pay. Tips for doing a mortgage stress test Suppose you were offered a mortgage for $400,000 at a rate of 1.78%, with payments of around $1,650 per month. If you want to stress test your mortgage, you’ll need to show that you can afford to pay the greater of. A $400,000 mortgage with a 5.25% interest rate would have monthly payments of $2,385. Your mortgage can pass a stress test if a $2,385 monthly payment is within your GDS of 35% or less and your TDS of 42% or less. The aforementioned scenario was provided for illustrative purposes only. As with any generalisation, specifics matter. The findings of the tests If your GDS and TDS ratios are quite high (very close to the maximum or over), you may still secure a mortgage. But you might have to reevaluate how much house you can afford. If your GDS and TDS ratios are low, you’ll likely get approval for a mortgage. Moreover you may even purchase a more costly home and still have money left over to maintain your current standard of living.

What is mortgage stress test? Read More »

Bank of Canada STATED: lower home prices are necessary for economic stability

Blogs / / / , , , , , , , ,

Bank of Canada STATED: lower home prices are necessary for economic stability Topping the list of Canada’s 99 concerns is it’s over $2 trillion in mortgage debt. Earlier today, Senior Deputy Governor of the Bank of Canada (BoC) Carolyn Rogers responded to worries over the country’s financial stability. She summed it up by focusing on two issues that have been around for a while but are mounting: consumer debt and the property market. She cautioned that homeowners may feel the effects of these measures over the next several months, but that they are important to bring the country’s markets back into equilibrium. RESIDENTIAL REAL ESTATE AND CONSUMER DEBT ARE A MAJOR RISK TO CANADA’S ECONOMIC GROWTH AND STABILITY When speaking about threats to financial stability, the senior deputy governor of the Bank of Canada zeroed primarily on consumer debt and housing prices. They stressed that neither issue is a recent development, pointing out that it has been discussed in central bank studies as far back as 2006. Despite the fact that no major catastrophe has occurred as of yet, growing systemic vulnerability is cause for alarm. What would have been a manageable problem in 2006 has ballooned into a major crisis because the Canadian economy is so dependent on the housing market. Prior to the epidemic, Rogers said, there were serious worries about cost and investor speculation. Issues that had previously only been affecting Toronto and Vancouver became national crises as the pandemic spread. In most markets, home values increased by over 50% in just over two years. She noted that “housing activity,” measured by the number of homes bought and sold, was roughly 30% greater than pre-pandemic levels. An essential clarification, as this wasn’t a time of low activity that low rates were attempting to boost. The market keeps adding fuel to the fire of stimulation provided by historically low-interest rates. FRONT-LOADING RATE INCREASES WILL LOWER RATES The simplest approach to guarantee a larger inflation spike is to pump the gas while the economy is thriving. Inflation had already reached sky-high levels before the invasion of Ukraine. A crisis exacerbated the difficulty of moving slowly, making swift action necessary. In order to quickly calm the economy and keep inflation expectations anchored, we have raised interest rates significantly. said Rogers, “greater rises in the future can be avoided.” She didn’t go into detail, but this is basic monetary policy. Inflationary pressures from interest rates will increase the longer it takes to raise them in an effort to rein in overheated demand. The resulting cycle of inflation and countermeasures is dubbed an “inflationary spiral” and is difficult to reverse. There are preliminary indicators that the monetary policy is having the desired effect, but we still have a ways to go until inflation returns to its target level. Sadly, there are unpleasant consequences to this transition. And we’re aware of that,” she said. FOR AN ADEQUATE BALANCE, CANADIAN HOME PRICES MUST FALL Canadian homeowners, especially those who were duped into assuming that current low-interest rates would persist for much longer, have been dealing with the aftermath. She pointed out that, while not a huge percentage of households, a larger than usual number had chosen to obtain mortgages with adjustable interest rates. Buyers today face interest rates that are substantially higher than they had bargained for, with interest eating up a growing portion of their original payments. Borrowers with fixed rates won’t feel the effects of rate hikes until it’s time to renew their loans. In a nutshell, property prices are going up significantly. Furthermore, a toxic market has developed due to the excessive lending that initially boosted investor demand and housing prices. To return to her original point, the 50% increase in property prices has exacerbated the affordability crisis that prospective buyers were already confronting. It’s not only in major cities like Toronto and Vancouver; it’s happening all around the country. Today, the Bank of Canada (BoC) unexpectedly acknowledged that housing prices are technically overvalued and would need to fall. The deputy governor has stated, “We need reduced house prices to restore balance to Canada’s housing market and make home ownership more attainable to more Canadians.” And he continued, “But reduced housing prices may increase stress for individuals who purchased recently. They’ll have less equity, which could make it harder for them to refinance. The least disruption will be seen by short-term end users because they won’t be leaving their current role for a long time. However, there may be instant liquidity difficulties for investors who considered extremely immediate bets. Especially if they’re part of the pre-sale market and haven’t yet taken possession of the home they’ve purchased. Related posts. How does a home warranty differ from an insurance policy? Read More Deposit Protection Eases Homebuying Stress Read More Importance of the performance audit Read More How can Home Warranty Guard You Against Unexpected Expenses Read More Canada hopes to welcome half a million immigrants by 2025, but can the country keep up? Read More Canadian Real Estate Prices Fall 30%, Recession Starts: Ox Econ Read More

Bank of Canada STATED: lower home prices are necessary for economic stability Read More »

Supply fixing Canadian Real estate seems a tiny solution to the heap of problems

Blogs / / / , , , , ,

Supply fixing Canadian Real estate seems a tiny solution to the heap of problems The fact that banks have become vocal critics of Canada’s real estate bubble is one of the biggest caution flags. Clients should remember that this isn’t a supply issue, according to BMO Chief Economist Douglas Porter. Last year, the bank cautioned that without demand measures, price growth would accelerate. Rather than heeding such counsel, policymakers clung to the supply store. After a year of near-record new house deliveries, the price increase is nearly double that of the previous year. Nothing like this has happened in Canada. Demand Measures Were Needed Last Year, and They May Be Needed Again This Year, according to BMO. The country’s oldest bank has been an outspoken critic of the government’s inaction on real estate prices. Home prices were already regarded as out of control and in need of intervention at this time last year. “We believe authorities and that in charge should move quicker, in some way, to address the housing pricing problem before the market faces more severe price hikes beyond anyone’s control,” Porter said. Last Spring, BMO cautioned that it would be too late to temper the market. However, policy actions aimed at limiting demand could have slowed the rate of price rise. Instead, policymakers emphasised the supply story, much to the delight of the sector. The promises to promote demand were much more explicit in the political platforms on which parties ran. It was difficult to find an economist who did not believe this approach would raise prices. He added “some indicated that the market was going to slow down and there was no requirement for urgency,” he continues, “while some others were just focused on supply (in slow motion) to resolve what was clearly an emergency. With rising supply, Canadian real estate prices are accelerating. So begins the tale of Canada’s failure to alter course, instead of adding fuel to the fire. According to the most recent CREA data, home prices increased by 29 per cent year over year in February. It was a problem last year, and it’s now less of a government worry than it was when the rate was half that. Existing homes may be scarce, but they are far from the only supply, according to BMO. New home starts came close to breaking records, while completions came close to breaking records as well. The number of new construction starts and completions is still substantially higher than it was before 2020. “Right now, prices in a lot of markets are going parabolic, and the price strength looks to be feeding on itself… “As a result, even with a robust supply response, the near lack of serious demand-control measures has allowed prices to go wild,” Porter argues. In Canada, supply is only a small part of the problem When it comes to supply, the bank isn’t saying stop building; rather, it’s saying it won’t address pricing at this point in the market. There is definitely a need to encourage supply. But, as he puts it, “it’s like bringing up a squirt gun to a raging flame of demand for fire, which is being increased by expectations of extra price hikes.” If it wasn’t evident already, this is one of Canada’s largest banks, and it has a vested interest in seeing prices rise. The motivation for them to obtain more and larger mortgages is obvious. That’s how messed up things are right now. Even those with a vested interest in the current market are concerned about systemic flaws.   Related posts. More options available for the buyers while prices are breaking records by admin123 Supply fixing Canadian Real estate seems a tiny solution to the heap of problems by admin123 Is the Housing Market Going to Cool Down in 2022? by admin123 Know why the real estate market is slowing down in Toronto by admin123 CMHC: mortgage debt climbed most since 2008 last year. by admin123 FACTS TO KNOW WHEN SHIFTING FROM VARIABLE MORTGAGE TO FIXED RATE by admin123

Supply fixing Canadian Real estate seems a tiny solution to the heap of problems Read More »

Is the Housing Market Going to Cool Down in 2022?

Blogs / / / , , , , , , ,

Is the Housing Market Going to Cool Down in 2022? We’re off to a good start in 2022 with rising housing prices. Buyer demand may dwindle as interest rates rise, causing property values to fall.The amount of inventory that enters the market will also impact whether or not prices cool. Are you looking to purchase a home this year? Here’s all you need to know about real estate prices. The housing market in 2021 was scorching, and many people who had hoped to buy a home were forced to put their plans on hold when skyrocketing property prices made it impossible. This year, we’re in a similar situation, but without the benefit of historically low mortgage rates to help offset rising home prices. According to the National Association of Realtors, the median existing-home sale price in January 2022 was $350,300. This represents a 15.4 per cent increase over the previous year. It’s apparent that demand is still high because buyers are willing to pay such a premium for a home. Will this pattern continue in 2022? Is it possible that housing demand may begin to diminish in the near future? Mortgage rate hikes may deter buyers. The average 30-year mortgage rate currently stands at roughly 4.5 per cent. Given that the 30-year loan didn’t even approach 4% in 2021, it’s a frightening number, especially at a time when home values are at an all-time high. But it isn’t just that mortgage rates are rising at the moment. Borrowers should instead expect rates to rise as the year progresses. For that, we can thank the Federal Reserve. The Federal Reserve recently boosted its federal funds’ rate and intends to raise it again this year. While the Federal Reserve does not determine mortgage rates, its activities certainly have an impact on them. As a result, it’s reasonable to expect that borrowers will pay more to finance a home in the months ahead. It’s also reasonable to predict that rising mortgage rates will cause some buyer reluctance. It remains to be seen if the decline is severe enough to cause home prices to fall significantly. However, there’s a risk that prices will gradually cool throughout the course of the year. Of course, housing inventory will influence whether or not home prices fall. Right now, we’re in the midst of a typical low-supply, a high-demand scenario that favours sellers. However, if more properties come on the market this year, buyers will regain some bargaining power, causing home prices to rise in a more positive direction for purchasers. Cash offerings will continue to reign supreme Whether you’re looking to buy a home for yourself or as an investment, one thing to keep in mind is that cash is king in today’s housing market. If you can make a cash offer on a home, even if you end up mortgaging it later, you’ll have an advantage over other buyers who must rely on finance to complete the transaction. Cash offers, on the other hand, may not be as easy to get by these days. When a need for cash arises, many real estate investors turn to their stock portfolios. And, given the current state of the stock market, now is not the best moment to liquidate stocks in order to free up funds for a home purchase. However, if you can pay cash, you’ll have a better chance of beating out other buyers at a time when housing inventory is still at an all-time low. Where should you put $1,000 instantly? REITs have routinely outperformed the stock market over the last 20 years or so. With the recent announcement of our top 5 preferred REIT investments, we believe now is an excellent moment to invest.   Related posts. Is the Housing Market Going to Cool Down in 2022? by admin123 Know why the real estate market is slowing down in Toronto by admin123 CMHC: mortgage debt climbed most since 2008 last year. by admin123 FACTS TO KNOW WHEN SHIFTING FROM VARIABLE MORTGAGE TO FIXED RATE by admin123 A transformation of Danforth Village neighbourhood by admin123 CIBC: Housing deficiencies linked to undercounted demand by admin123

Is the Housing Market Going to Cool Down in 2022? Read More »

Know why the real estate market is slowing down in Toronto

Blogs / / / , , , , , ,

Know why the real estate market is slowing down in Toronto Recently, Toronto’s real estate market has become unstoppable and hiking, with property prices skyrocketing, but purchasers have a complete sense of hope. According to the recent research by Move Smartly, a real estate authority in Toronto, the city is displaying early signs of a decrease because very fewer buyers are viewing homes and there has been a drop in the number of bids sellers receive. “Every week, I meet with my agents to discuss the real-time patterns we’re seeing on the ground,” said John Pasalis, president of Realosophy, a Toronto real estate agency. “By mid-February, we had all begun to notice early indicators of these tendencies and we believed the market would likely cool down sooner than we had anticipated.” To begin, I’d like to point out that one of the difficulties in addressing early signals of a slowdown is that home buyer and housing analysts alike are frequently perplexed because they rarely perceive any signs of a slowdown. The buyer still bidding on a property against 20 other bidders sees no signs of a downturn, and the housing specialist will not find a single measure in this report that implies things are slowing down. The first signs of a slowdown are a decrease in the number of buyers viewing homes and a decrease in the number of offers a seller receives on offer night, both of which are trends observed by market participants rather than data. Another positive trend for purchasers is the rise in the number of homes that don’t really sell on offer night. According to the survey, sellers typically advertise their homes well below market value in order to attract more purchasers. This is a tactic that allows a seller to sell their home for 5 to 20% more than the asking price, which is closer to the home’s actual market value. When a home does not sell on the seller’s offer night, the seller will often raise the asking price to a level that they are willing to accept (i.e., closer to true market value),” Pasalis explained. According to research, approximately 5% of properties with offer nights failed to sell in February, causing the sellers to raise their asking price. Buyer weariness, high prices, and rising rates, as well as inflation and future macroeconomic uncertainties, could contribute to a gradual decline in the market, according to Pasalis. Although a few weeks do not constitute a trend, I believe this shift will continue in the months ahead. Buyer fatigue, high prices, rising rates, inflation, and the macroeconomic dangers that lie ahead should all contribute to a gradual market slowdown. Buyers should keep an eye on these trends because they may find themselves buying a property in a highly competitive market only to have to sell their existing home in a much softer market. More than ever, timing will be crucial. While it’s still too early to observe any significant changes in the Toronto real estate market, if current patterns continue, the city could be on its way to a more manageable housing market by 2022. Related posts. Know why the real estate market is slowing down in Toronto by admin123 CMHC: mortgage debt climbed most since 2008 last year. by admin123 FACTS TO KNOW WHEN SHIFTING FROM VARIABLE MORTGAGE TO FIXED RATE by admin123 A transformation of Danforth Village neighbourhood by admin123 CIBC: Housing deficiencies linked to undercounted demand by admin123 April witnessed an increase of 8% in Canada’s housing starts by admin123

Know why the real estate market is slowing down in Toronto Read More »

CMHC: mortgage debt climbed most since 2008 last year.

Blogs / / / , , , , , ,

CMHC: mortgage debt climbed most since 2008 last year According to a new report by Canada Mortgage and Housing Corp., residential mortgage debt climbed last year at the quickest pace since 2008. Mortgage debt increased by 9% last year, and by 10% in the first few months of this year before rising interest rates began to dampen the market, according to the Federal Housing Administration. “Family investments are rather high. Therefore, it’s a potential weak spot, “said CMHC senior economist and report co-author Tania Bourassa-Ochoa. There was a 43% increase in new mortgage originations and a 22% increase in refinances from 2020 to 2021, resulting in an increase of $400 billion in residential mortgages held by banks and a rise of $54 billion by credit unions. However, as central banks have raised interest rates in recent months to control inflation, real estate activity has slowed significantly. On Tuesday, the Real Estate Board of Greater Vancouver reported a drop of 35% in regional house sales compared to the previous June, while on Wednesday, the Toronto Regional Real Estate Board reported a drop of 41%. CMHC reports that when the discount on interest rates grew last year, borrowers favoured variable rate mortgages, which jumped from 34% to 53% of the overall mortgage market during the second half of the year. Since more people now have mortgages with adjustable rates, higher interest rates will affect them more acutely when it comes time to renew their loans. “Canadians who took out a new mortgage with variable interest rates will be the ones to experience that hike most, and most quickly,” said Bourassa-Ochoa. Mortgage defaults decreased across the board last year, indicating that borrowers were able to meet their financial obligations. This was due in large part to rising savings rates and a strong property market. Indigenous, Black, Arab, and Latino populations were found to have significantly lower homeownership rates than the national average as of the 2016 census, the most recent data available at the time the article was written. Homeownership rates were just under 50% across the board, with white and Chinese populations having somewhat higher rates than the national average (74% vs. 76%, respectively). Even after accounting for factors such as race, age, education, and income, the analysis found that Indigenous, Black, Latinx, Arab, and Filipino Canadians continue to have lower average property values than other Canadians. This disparity has grown since the 2006 census. It stated that huge disparities in home wealth between demographic groups are an indication that inequality would remain since housing wealth is a powerful determinant of future generations’ economic success. Related posts. CMHC: mortgage debt climbed most since 2008 last year. by admin123 FACTS TO KNOW WHEN SHIFTING FROM VARIABLE MORTGAGE TO FIXED RATE by admin123 A transformation of Danforth Village neighbourhood by admin123 CIBC: Housing deficiencies linked to undercounted demand by admin123 April witnessed an increase of 8% in Canada’s housing starts by admin123 The Finalization of 10Block Studio’s Plans for Luxury Condo by admin123

CMHC: mortgage debt climbed most since 2008 last year. Read More »